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You can short bubbles via long term put options, that's what I do. Tech (XLK, QQQ), green themes (PBW, TAN), borderline personality cults and ridiculous dreams

You can short bubbles via long term put options, that's what I do. Tech (XLK, QQQ), green themes (PBW, TAN), borderline personality cults and ridiculous dreams (TSLA, SPCE), US corporate credit (JNK, LQD). Of course because it's options you always have to consider whether the market perception of IV isn't already too high. For example SPCE is a ridiculously good short but "the market knows" and the IV is ridiculous too. Also no two recessions are 100% alike. Most importantly - will the next one be deflationary or inflationary? Even that is hard to say. Growth in credit suggests deflation, but then if we face mass bailouts then gold and oil will be the places to be. Also, the virus thingy may be quite inflationary (disruption of supply chains, no more stuff from China!) if it materializes. I guess what I'm trying to say is that it's not about "crisis/not crisis", but rather "what is currently severely mispriced, and will correct when the market volatility rises?". This can be either up or down in price. Finally, if the world temperature goes to, say, +5*C or the virus is really super bad then this is risk that's not hedge-able via capital markets, because it will fuck up capital markets themselves. Think of this as counterparty risk.

repsilat 7y ago
> Of course because it's options you always have to consider whether the market perception of IV isn't already too high. For example SPCE is a ridiculously good short but "the market knows" and the IV is ridiculous too. So just use a spread?
- H8crilA 7y ago
  You still pay a lot in IV even if you do a spread, i.e. the reward/risk is not that great (2022 puts on SPCE have an IV in excess of 100%... that's too much for me). And I don't have the stomach to sell options. But that's all my opinion, go ahead and do it if you think it makes sense.
  - repsilat 7y ago
    You pay IV on one side and get it back on the other, don't you? AIUI high IV just means the spread won't start "paying off" until closer to expiry.
    - H8crilA 7y ago
      > You pay IV on one side and get it back on the other, don't you? No. You get less on the other side. You should look up Black-Scholes to understand how option pricing works. A put option's value comes from integrating the underlying lognormal distribution between 0 and the strike price. A spread's value comes from integrating the underlying distribution between the two spread strikes. Both heavily depend on IV (i.e. the sigma of the log-normal distribution). Also, always think about the guy on the other side of the trade. Why would he sell you a spread cheaply if it's obvious that the underlying is very shitty and volatile? Options are bets on the probability distribution of some asset. High IV means "anything is possible". And if anything is possible then it stands that there's little money to be made on a move like "give me insurance against it going up/down". There is some money to be made on "I can underwrite the risk of it going down/up", i.e. on selling the options, i.e. selling the IV.
  - Itsdijital 7y ago
    There are always the 3x leveraged ETFs, kinda work like LEAPS lite
    - H8crilA 7y ago
      This is really quite different, and is actually in practice more similar to selling options because of the bad effects of increased volatility. They massively underperform under heightened volatility, simulations are right there in prospectuses (in fact I'd go as far as to say that their expected value is 0 over the long run, but like very long, maybe 10-30 years). And yes you should always read the specs/prospectuses/10-Ks of the contracts/funds/companies that you buy.
cik 7y ago
Beat me to it! Rolling options orders are the only way. Plus, depending on the spread in-month you can probably hedge your hedge, and buy a call on the other side.
- H8crilA 7y ago
  How many months out options are you using, and when do you roll over? I'm mostly in 2022 expirations, this way I don't have to obsess over daily changes in Mr Market moods (unless some good opportunity is coming along, like that rally in TSLA).
  - cik 7y ago
    I'm not in on TSLA - I've been doing covered calls here monthly. Even when they're called away there's enough of a spread between Friday morning and mid-morning where I sell the covered call. Today on the other had was a very, very good day.
kds3 7y ago
Put options will only work in case your counterparty will have liquidity to pay you back. In case of deep recession your counterparty can just go bankrupt and you would have to take losses (sell their assets at after-recession prices).
- H8crilA 7y ago
  Nothing's perfect. Gold bullion is the only asset in the world that's not someone else's liability. Even cash is someone else's liability.
  - dodobirdlord 7y ago
    There’s also land.
    - hakesdev 7y ago
      “Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.” - Talmud
      - idoh 7y ago
        I was curious about this, so I tracked down the actual quote in the Talmud. The "land" in question basically means farming. I don't think we'd find that relevant today. And the talmud actually advises 0% to land / farming as the majority position. ---- 173. A hundred Zuz [invested] in business, and every day meat and wine; a hundred Zuz [invested] in land, and salt and vegetables (Jeb. 63a; D. 463). The Jews seem at one time to have had a disinclination to acquire much land, possibly on account of the uncertainty of tenure in the time of persecution. Cf. the wording of proverb no. 130. The opinions on the question of landed property differ very widely. Ben Sira says: "Hate not laborious work, neither husbandry, which the Most High hath ordained" (Ecclus. vii. 15). The fact that "husbandry" is specially mentioned is in keeping with Ben Sira's general view, shared by the Greeks, that occupation with the soil led to boorishness. A Rabbi of the second century AḌ. gives it as his opinion that there could be no worse occupation than agriculture, and on seeing a field ploughed across its breadth he exclaimed sarcastically, "Plough it also long-wise, and still you will find that to engage in commerce is more profitable" (Jeb. 63a). Rab, who lived in the third century, noticed the ears of corn being fanned by the breeze, and declared "However much you may fan, it is better to devote oneself to commerce" (ibid.). On the other hand, it is also said, "A man who does not possess a piece of land is not fit to be called a man" (ibid.); and another Rabbi adopts a middle course by advising "Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep by him in reserve" (B. M. 42a).
dahx4Eev 7y ago
How long are the long term contracts?

repsilat 7y ago

> Of course because it's options you always have to consider whether the market perception of IV isn't already too high. For example SPCE is a ridiculously good short but "the market knows" and the IV is ridiculous too. So just use a spread?

H8crilA 7y ago
You still pay a lot in IV even if you do a spread, i.e. the reward/risk is not that great (2022 puts on SPCE have an IV in excess of 100%... that's too much for me). And I don't have the stomach to sell options. But that's all my opinion, go ahead and do it if you think it makes sense.
- repsilat 7y ago
  You pay IV on one side and get it back on the other, don't you? AIUI high IV just means the spread won't start "paying off" until closer to expiry.
  - H8crilA 7y ago
    > You pay IV on one side and get it back on the other, don't you? No. You get less on the other side. You should look up Black-Scholes to understand how option pricing works. A put option's value comes from integrating the underlying lognormal distribution between 0 and the strike price. A spread's value comes from integrating the underlying distribution between the two spread strikes. Both heavily depend on IV (i.e. the sigma of the log-normal distribution). Also, always think about the guy on the other side of the trade. Why would he sell you a spread cheaply if it's obvious that the underlying is very shitty and volatile? Options are bets on the probability distribution of some asset. High IV means "anything is possible". And if anything is possible then it stands that there's little money to be made on a move like "give me insurance against it going up/down". There is some money to be made on "I can underwrite the risk of it going down/up", i.e. on selling the options, i.e. selling the IV.
- Itsdijital 7y ago
  There are always the 3x leveraged ETFs, kinda work like LEAPS lite
  - H8crilA 7y ago
    This is really quite different, and is actually in practice more similar to selling options because of the bad effects of increased volatility. They massively underperform under heightened volatility, simulations are right there in prospectuses (in fact I'd go as far as to say that their expected value is 0 over the long run, but like very long, maybe 10-30 years). And yes you should always read the specs/prospectuses/10-Ks of the contracts/funds/companies that you buy.

cik 7y ago

Beat me to it! Rolling options orders are the only way. Plus, depending on the spread in-month you can probably hedge your hedge, and buy a call on the other side.

H8crilA 7y ago
How many months out options are you using, and when do you roll over? I'm mostly in 2022 expirations, this way I don't have to obsess over daily changes in Mr Market moods (unless some good opportunity is coming along, like that rally in TSLA).
- cik 7y ago
  I'm not in on TSLA - I've been doing covered calls here monthly. Even when they're called away there's enough of a spread between Friday morning and mid-morning where I sell the covered call. Today on the other had was a very, very good day.

kds3 7y ago

Put options will only work in case your counterparty will have liquidity to pay you back. In case of deep recession your counterparty can just go bankrupt and you would have to take losses (sell their assets at after-recession prices).

H8crilA 7y ago
Nothing's perfect. Gold bullion is the only asset in the world that's not someone else's liability. Even cash is someone else's liability.
- dodobirdlord 7y ago
  There’s also land.
  - hakesdev 7y ago
    “Let every man divide his money into three parts, and invest a third in land, a third in business and a third let him keep by him in reserve.” - Talmud
    - idoh 7y ago
      I was curious about this, so I tracked down the actual quote in the Talmud. The "land" in question basically means farming. I don't think we'd find that relevant today. And the talmud actually advises 0% to land / farming as the majority position. ---- 173. A hundred Zuz [invested] in business, and every day meat and wine; a hundred Zuz [invested] in land, and salt and vegetables (Jeb. 63a; D. 463). The Jews seem at one time to have had a disinclination to acquire much land, possibly on account of the uncertainty of tenure in the time of persecution. Cf. the wording of proverb no. 130. The opinions on the question of landed property differ very widely. Ben Sira says: "Hate not laborious work, neither husbandry, which the Most High hath ordained" (Ecclus. vii. 15). The fact that "husbandry" is specially mentioned is in keeping with Ben Sira's general view, shared by the Greeks, that occupation with the soil led to boorishness. A Rabbi of the second century AḌ. gives it as his opinion that there could be no worse occupation than agriculture, and on seeing a field ploughed across its breadth he exclaimed sarcastically, "Plough it also long-wise, and still you will find that to engage in commerce is more profitable" (Jeb. 63a). Rab, who lived in the third century, noticed the ears of corn being fanned by the breeze, and declared "However much you may fan, it is better to devote oneself to commerce" (ibid.). On the other hand, it is also said, "A man who does not possess a piece of land is not fit to be called a man" (ibid.); and another Rabbi adopts a middle course by advising "Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep by him in reserve" (B. M. 42a).

dahx4Eev 7y ago

How long are the long term contracts?